They figure that if the case becomes long drawn, Seatrium may have to provide for $20 million in related costs in the current FY2025 ended Dec.
For now, they are keeping their "add" call and $2.80 target price as they still see Seatrium reporting core profit growth and margin recovery for this year.
On Oct 10, Seatrium said that the order for a nearly completed wind turbine installation vessel (WTIV) was cancelled by the customer, Maersk Offshore Wind, a subsidiary of the shipping giant.
The contract was awarded in 2022 to pre-merger Sembcorp Marine for delivery in the coming FY2026.
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This vessel was to be deployed at a US offshore wind farm, Empire Wind 1, operated by Equinor.
"We suspect the termination by Maersk is due to the unstable offshore wind market in the US and potentially lower life cycle returns from the project," state Lim and Kande in their Oct 10 note.
In April, the US government issued a stop-work order on the Empire Wind project, which was lifted the following month.
Equinor had already taken US$763 million in impairments in 2QFY2025 related to the combined Empire Wind 1/South Brooklyn Marine Terminal project, driven by reduced expected synergies from future offshore wind projects due to regulatory changes and increased exposure to tariffs.
"That said, Equinor noted that project development was still on track," according to the analysts, adding that daily rates for a 14-20MW WTIV are now around US$300,000 to US$350,000.
Lim and Kande note that Seatrium is reviewing the validity of the termination and considering legal and or commercial actions, potential claims for wrongful termination, or other remedies.
"We think Seatrium could negotiate with Equinor or find another operator to take over the vessel."
They also point out that the project was won in 2022, when the industry was at the doldrums and margins of orders won back then tend to be lower at just 5 to 6% ebit.
Assuming 80% of revenue has been recognised, they estimate a profit impact of $30 million for the contract.
On the other hand, the construction work on the 810MW Empire Wind 1 offshore substation platform for Equinor for 2026 delivery, likely worth $150 million, remains unaffected, say Lim and Kande.
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With prospects of improving core profit and better margins this year, they are keeping their "add" call.
Downside risks are order cancellations and project cost overruns, while catalysts include sizeable order wins and stronger-than-expected margins.
Seatrium shares are down 3.51% ahead of the lunch break to trade at $2.20.
